What Happens When You Stop Paying Your Credit Card Bills?

Tamsen Butler
Payment due

What happens when you stop paying your credit cards depends largely on what you do beforehand - if you contact your creditors to explain your situation before you miss the first payment, you may be able to negotiate a different payment schedule or greatly reduced payment. On the other hand, if you simply stop paying the bills, you can expect to hear from your creditor fairly quickly after the first missed payment.

Changes in Terms and Conditions

Most credit card agreements feature provisions allowing the credit card company to not only charge late fees upon the first missed payment, but the interest rate can change, too. Cardholders with low interest rates will quickly find their favorable rates increased, and this new, higher interest rate will apply to your entire existing balance. This higher interest will also apply to the existing balance including any late fees assessed, which is why delinquent cardholders are often shocked by how quickly their balances increase from the point they stopped paying on the card. If you have more than one credit card from the same company, the company can increase the interest rate on all of the cards.

Other Interest Rates

If you have other, separate credit cards from other companies, you may find those interest rates increase too after a routine credit check reveals your delinquency on the card you stopped paying. It can also affect the cost of your existing insurance policies if your insurer does routine credit checks prior to issuing renewal policies.

Declined Charges

Credit card companies will cancel any available credit from your account once it becomes evident you don't intend to pay, usually around 90 days from when the payment was due. If you try to use the card to make a purchase, the transaction will be denied; the same will be true for automatic payments.

Credit Reporting

While it's true you're technically late on your credit card account the day after missing the payment due date (and any grace period, if applicable), the late payment won't be reported to the credit reporting agencies until it's 30 days late. Your credit report will show the balance due at last reporting, the average monthly payment, and how many days it is overdue; this is shown in increments of 30, 60, 90, 120, and 180 days. After 180 days overdue, it's likely the balance will be charged off by the credit card company. Late payments do result in a drop in credit score, but charge offs have the potential to damage your score significantly.

Charge Offs

A charge off is basically a creditor's way of reporting, "We tried to collect on this debt but were unsuccessful, and we have no reason to believe it will ever be paid." FICO says credit payment history makes up 35 percent of a credit score; missed payments can make your score drop quickly.

Collecting on the Debt

Unlike with debts, such as mortgages and car loans that are secured by collateral, there is nothing to be repossessed with unsecured credit card debt. This limits what collectors can do in order to get you to pay back what you owe. When the credit card payment is first missed, you will likely receive a courtesy call or other notification from the credit card company. If you have a history of paying on time, it's likely the company will approach it as if you simply forgot to make the payment. As time passes, the attempts to collect on the debt will get a little more aggressive and a little less cordial. During this time, your late payments are likely being reported to the credit reporting agencies and your credit score may be dropping.

Collection Agency

At around 180 days late, the original creditor may sell the debt to a collection agency, which means the debt is now "owned" by the collection agency, and they are allowed to pursue payment. You may be offered a settlement, which allows you to settle the debt for an amount lesser than the total amount owed. Collectors can do this because they purchase the debt for less than the actual amount. For example, if they buy a $5,000 debt for $2,000 and then turn around and settle for $3,500, they still make a profit even though the debtor winds up paying less.

Wage Garnishment

Credit card companies can garnish wages, but only after winning a judgement against you in court. Garnishment laws vary by state, so some states may not allow garnishment. In states where garnishment is allowed, the amount garnished from your paycheck will be determined according to the Consumer Credit Protection Act. Only a portion of your wages can be garnished; creditors cannot demand full payment from garnishment funds to the detriment of your basic financial needs. Funds from tax returns can be garnished, as well, if a judgement is in place.

Jail for Non-Payment

It's possible to be sent to jail for non-payment of some types of bills in some states, such as child support and taxes, but in the United States you cannot be sent to jail for not paying credit card debts.

Walking Away From Debt

Simply stopping payments to credit cards is not a viable option if you want to maintain an acceptable credit score. The repercussions of non-payment can impact future attempts at credit, insurance, jobs, or house rentals.

What Happens When You Stop Paying Your Credit Card Bills?